The day after Christmas has been, historically a good day for the stock market and today’s move was no exception. Stocks climbed steadily after the first few hours of trading. Lead by the Dow Jones Industrial the entire market got a nice boost. Volume was higher on the day, not too hard when Tuesday was a half day of trading. This uptrend remains strong and we continue to expect new highs to be hit. While we may experience a natural reaction to the downside after these gains this market should continue to set records. Stay with the trend our friends!
There is some indication this market may have gotten ahead of itself. For one, the VIX fell below the 12 level today. Typically the market tends to pull in once the VIX drops below the 12 handle. 76 percent of stocks are above their 20 day moving average another indication this market is vulnerable to a pull back. We are in a holiday week and moves can get extreme when participation is low due to the holiday season. Remember, it is important to have your exit plan in place rather than flying by the seat of your pants. A sound strategy executed with discipline is the only way to operate in this market.
Another sign we may be nearing a top are the number of bulls in this market. The AAII Bulls topped out at 55%. Meanwhile the number of bears dropped to 18%. The spread between bulls and bears on the AAII index is at its widest point in months. At this point in time there isn’t a reading from the NAAIM Manager survey, but given where the AAII survey is at we can safe assume there are bullish bets being made by the NAAIM managers. We aren’t about to call a market top here as we very well know this thing can push much higher. What we are saying is don’t be surprised if this market pauses before moving to the upside.
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